Weekly Market Update, July 14, 2023
Dow Jones Industrial 34,509 +2.3%, S&P 500 4,505 +2.4%,
Nasdaq Composite 14,114 +3.3%, US Ten Year 3.82%, Crude Oil $75.33
Good News for the Fed
Jerome Powell and the Federal Reserve received a healthy dose of good news this week with CPI (Consumer Price Index) figures released Wednesday and PPI (Producer Price Index) released on Thursday. The headline CPI figure rose +3% from one year ago (vs mkt forecasts of +3.1%) and +0.2% month over month (vs +0.3% forecasts). PPI for June rose 0.1% (vs forecasts of +0.2%). Equity markets cheered the news and bond yields fell on the hopes that the Federal Reserve may not have to keep interest rates elevated for as long as previously thought. The chart below shows the YoY headline (dark blue) and core CPI reports since 2020.
Despite the market’s “rational exuberance,” (yes that’s a throwback catch-phrase; credit to Alan Greenspan who coined the phrase “irrational exuberance) most economists and analysts expect two more rate hikes this year. In fact, even after the positive inflation numbers this week, Federal Reserve Board Governor Christopher Wallers said Thursday he was not swayed and wants to go with two more 25bps rate hikes this year. If this plays out, the Federal Fund rate would be in a range of 5.5% - 5.75%.
Keep in mind that while the Fed has been consistent in messaging that they are targeting +2% inflation rate, Jerome Powell and team are NOT deaf to the outside world. Bank failures, cracks in the economy, and the potential for a long recession are increased the more rate hikes go into play and the longer rates are kept at elevated levels. Calls from Senator Warren to stop rate hikes are just the tip of the iceberg from the political pressure that will undoubtedly be exerted on Powell and team.
If next month’s CPI and PPI prints show continued faster than expected disinflation, Powell and team will see this as welcome news and the forecasts of two rate hikes then comes into question.
How should investors try and time this madness into a money-making proposition? The answer is, don’t even try. Timing the market is, for lack of a better phrase, a fool’s game. Legendary investor Peter Lynch said, “Thousands of experts study overbought indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supply…and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.”
Rather than trying to pick spots, stay invested for the long term in companies with proven business models that can grow and stay profitable in the face of economic uncertainty. The chart below illustrates this by showing the growth of $1 invested in the S&P 500 since 1990 (black line).
If you missed just the 25 strongest days in the market since 1990 (red line), you might as well have been invested in five-year Treasury notes (grey line). If you ever meet ANYONE who claims they can, over the course of 20 years, time the market and predict when the market’s best twenty-five days will be, then please, do run from that person. The only real way to be a part of those days is to stay invested.
Said another way for all the movie buffs out there:
The game of market timing is almost like playing a simulation computer game with NORAD…the only winning move is not to play.
Pop Quiz - Name the movie – submit your answer HERE.
Have a great weekend,